Former S&l Exec Keating Found Guilty Of Fraud

December 5, 1991|By Los Angeles Times

LOS ANGELES — Charles H. Keating Jr., who became a national symbol of greed and excess in the thrift industry, was convicted Wednesday on 17 of 18 counts of securities fraud stemming from the sale of his company's bonds at Lincoln Savings & Loan branches.

The verdict, issued by an eight-woman, four-man jury sitting in Los Angeles County Superior Court, ended a long, complex trial that for the first time probed some of the events surrounding Lincoln's 1989 collapse. It cost taxpayers $2.6 billion and was the largest thrift failure in U.S. history.

Keating, who turned 68 Wednesday, stood straight, stoically taking the jury's judgment count by count. In the audience, two of his sons-in-law sat grim-faced, one with his head in his hands. Keating's secretary held back tears, once biting one of her knuckles to hold herself in check.

A group of bondholders, though, held hands tightly, smiled broadly and barely suppressed cheers each time the court clerk read a guilty verdict.

Five senators, Alan Cranston, D-Calif., Dennis DeConcini, D-Ariz., John McCain, R-Ariz., Donald W. Riegle Jr., D-Mich., and John Glenn, D-Ohio, were accused of ethics violations in their efforts to intervene on Keating's behalf with federal regulators.

Of the five, only Cranston was reprimanded by the Senate Ethics Committee for ''repugnant'' conduct in his dealings with Keating, who contributed more than $1 million to favorite Cranston causes.

Keating faces a maximum of 10 years in prison and a $250,000 fine at his sentencing, which is scheduled for Feb. 7. He remained free after the verdict on $100,000 bail, after Judge Lance A. Ito rejected the prosecution's effort to raise bail to $1 million.

''I firmly believe in myself, my family, my friends and I very much believe in my counsel,'' Keating said outside court. ''I look forward to the future unafraid, sure that justice will be done.''

Stephen C. Neal, his attorney, said that he would ask Ito to overturn the verdicts and, failing that, appeal the decision.

Prosecutors, who faced an uphill battle with a much-criticized case and adverse rulings, were elated.

''We were able to weave a web of circumstantial evidence tightly enough'' to prove Keating's culpability, said William Hodgman, the deputy Los Angeles County district attorney who prosecuted the case.

The verdict does not end the threat of further criminal prosecution against the former Arizona businessman. A long-awaited federal grand jury indictment is expected soon. Keating was told more than a year ago that he was a target defendant in that investigation.

He also faces much civil litigation involving many of nearly 20,000 small investors who purchased about $250 million in bonds from Keating's American Continental Corp. The company sold many of the junk bonds through Lincoln branches.

''It don't get me money, but that's not the point. We finally found him guilty,'' said bondholder Jeri Mellon as she broke down in tears outside the courtroom.

Mellon, who said she lost $40,000 by buying American Continental bonds, said that the verdict should help thousands of bondholders recover their investments in civil lawsuits filed in courts in Arizona.

The prosecution's case attempted to show that Keating withheld important information from customers about the shaky financial condition of Lincoln and American Continental from the start of the bond sales program in early December 1986.

Jury deliberations began Nov. 18 after 11 weeks of testimony, 53 witnesses and more than 100 exhibits.

Keating's conviction also was met with enthusiasm at the agency in charge of regulating S&Ls.

''We are pleased to see that justice has been done,'' said Carolyn Lieberman, senior deputy chief counsel of the Office of Thrift Supervision in Washington. ''By law, the conviction automatically results in Keating being banned from the banking industry.''

The agency, however, will continue to pursue its $130.5 million enforcement action against Keating and six others for four transactions that caused losses at Lincoln, she said.